The major indexes just haven't been able put together much of a bid after a reversal from their morning highs, brought on by the Homeland Security office raising its alert to "Code Orange," and now break to fresh session lows and begin to extend losses below yesterday's session lows.
Early session selling in Treasuries as been largely reversed, as the major maturities now trade flat on the session after seeing losses on this morning's non-farm payroll and unemployment rate announcements. As discussed in the 11:00 AM EST update, the "time line" of today's news, "clearly" showed that the reversal in the indexes came just as the Homeland Security office raised its terrorist threat level to Orange from Yellow. This is up from the "Code Yellow" or "elevated" level of risk. "Code Orange" is considered "high" alert.
The government said it doesn't have any information on "known" terrorist plans, but "chatter" of terrorist activity has been obtained on "specific intelligence," which has been "corroborated by multiple intelligence sources."
Today's raising to "Code Orange" is the second time the alert system has been raised to high; the first was last September at the anniversary of the attacks on the World Trade Center and Pentagon.
Attorney General John Ashcroft and Secretary of Homeland Security Tom Ridge said the al-Qaida terror network may attempt to attack Americans either at home or abroad near the end of the Muslim holy period of Hajj, in the middle of February.
Per last night's Index Trader Wrap at OptionInvestor.com, I've been monitoring the S&P Banks Index (BIX.X) 270.67 -0.5%, for a trade below the 269 level for "confirmation" to an "accelerated" type of move lower in the major indexes. Technical damage continues to be seen from our WEEKLY Pivot analysis work as the Dow, SPX and OEX extend losses now from their WEEKLY S1 levels of support and have this week's S2 levels of support in play by session's end.
The NASDAQ-100 Index (NDX.X) 958.13 -1.27% has just now violated its WEEKLY S1 level of support (960) and begins to give some major index "confirmation" that supply continues to outstrip demand. Downside risk in the NASDAQ-100 now assessed to WEEKLY S2 of 937, or 61.8% retracement of 933. I'm now looking for resistance to be firm at the 50% retracement level of 975.
After the conclusion of today's trading, we will once again run new pivot analysis for next week's WEEKLY levels. If I were to take this weeks range for the SPX of (H=845.73, L=829.56) and "assume" a close of 829.56 in the SPX, then next weeks levels from pivot analysis would be, (S2=819, S1=824, P=835, R1=840 and R2=851). A quick look at the monthly pivot analysis that won't change, I see correlative support at the MONTLY S1 of 819 in the SPX, hinting of future weakness into next week near that level. I do not find any correlative levels of resistance between the aforementioned weekly PROJECTIONS (subject to change based on today's conclusion of trading) and the MONTLY SPX pivot analysis levels.
Last night I wanted to perform some point and figure analysis on the S&P Banks Index (BIX.X) to correlate against what we were looking at in this index as "critical" support at the 269.00 level, and if broken to the downside, could sign of sector weakness among the financials, which according to market theory that "financials should trade strong for a market move higher," might have the same impact to the downside.
Unfortunately, Stockcharts.com does not gather data for the BIX.X and I can't show the p/f chart of the BIX.X from Dorsey/Wright and Associates. However, I've drawn up some observations from the Regional Bank HOLDRs (AMEX:RKH) $98.12 -0.23%. There have been no new chart entries made with today's action.
Regional Bank HOLDRs (RKH) - $2 and $1 box
The "makeup" of the RKH is that of regional banks, that lack much of the more "global" and "investment banking" type of business that the components of the KBW Banking Index (BKX.X) 711.96 - 0.71% depict. Therefore, my thinking of showing the RKH is that it is "regional banks" that would more closely mirror the BIX.X. In the above chart, I see how the $98.00 level has seemed to be a "level" historically where when broken to the downside, some rather loooong columns of O's (supply/selling) have been generated.
Today, I was also watching the RKH for potential short entry near $101, thinking that resistance should be near the $102 level. During my observation time, I saw a rather large trade of 10,000 shares take place (see market monitor at 10:47 AM EST at OI) which came on an "up-tick." While I can't say for certain, I think that may have been a "structured trade" whereby a large institution may have wanted to short, or use a short, to hedge a larger basket of banking stocks. Again... this may be my "bias" as I'm monitoring the banks for weakness that might further confirm some of the technical breakdowns exhibited in the major indexes, but an observation nonetheless.
The Regional Bank HOLDRs (RKH) do trade options, and those looking bearish, I'd be looking for minimum 2-month expiration, and prefer an in or at the money contract. Option volume has been very slow today.